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Regional Morning Notes Summary - 17 February 2016

Core Content Overview

This report provides an analysis of financial and market updates from various regions, including China, Indonesia, Malaysia, Singapore, and Thailand, with a focus on stock performance, corporate activities, and market outlook.

Main Points

China

• Zijin Mining (2899 HK):
  • Unaudited 2015 earnings declined 28% yoy, worse than the estimated 22% drop and consensus 4% decline.
  • The company is affected by low metal prices but has seen growth in production and hedge gains.
  • Zijin is expected to achieve 15% growth in gold production in 2016 due to the acquisition of two overseas mines.
  • Zijin's gold reserves increased 11.7% yoy to 1,500 tonnes, and copper reserves surged 68.5% yoy to 26m tonnes.
  • The company is trading at 24x 2015F PE, slightly above its historical average. P/B is at 1.4x, below the historical mean of 2x.
  • Maintained HOLD rating with a target price of HK$2.20.

Indonesia

• Bank Tabungan Negara (BBTN IJ):
  • Dominant mortgage lender with a 24% share of the property loan market (as of Dec 14).
  • Key player in the government's "One Million Houses" programme, which aims to build 1 million affordable houses annually.
  • Trading at 1x 2016F P/B, slightly below its historical average.
  • Management guided for 30% earnings growth in 2016, higher than the consensus 8%.
  • The bank has strong relationships with over 1,000 developers and 860 outlets across Indonesia.
  • 96% of its mortgage loans are for finished houses, and 99% are for first-time homebuyers.

Malaysia

• Dialog Group (DLG MK):

  • 2QFY16 results showed strong Pengerang activities and a qoq recovery in international operations.
  • Suggests continued demand from global refineries and upstream production customers.
  • Recommended as BUY with a target price of RM1.77.

• Hartalega Holdings (HART MK):

  • 3QFY16 net profit grew 21% qoq due to new production lines and a firmer exchange rate.
  • Recommended as SELL with a target price of RM3.45.

Singapore

• StarHub (STH SP):

  • 4Q15 results showed revenue headwinds and rising expenses.
  • Recommended as HOLD with a target price of S$3.80.

• United Overseas Bank (UOB SP):

  • 4Q15 results indicate preparation for headwinds from a cyclical slowdown.
  • Recommended as NOT RATED with a price of S$17.81.

Thailand

• KCE Electronics (KCE TB):
  • 4Q15 earnings met expectations.
  • Recommended as HOLD with a target price of Bt73.25.

Key Indices Performance

Top Picks

Key Assumptions

Corporate Events

Key Financial Highlights

Zijin Mining

• Net Profit (Rmbm): 2,126 (2014), 2,345 (2015), 1,447 (2016), 1,819 (2017)
• EBITDA (Rmbm): 6,889 (2014), 6,243 (2015), 5,627 (2016), 6,473 (2017)
• Operating Profit (Rmbm): 4,722 (2014), 3,597 (2015), 2,285 (2016), 2,816 (2017)
• Net Interest Income/(Expense): (768.0) (2015), (753.6) (2016), (805.2) (2017)
• Net Debt/(Cash) to Equity (%): 33.4 (2015), 45.4 (2016), 46.6 (2017)
• Interest Cover (x): 8.1 (2015), 7.5 (2016), 8.0 (2017)
• ROE (%): 8.4 (2015), 6.0 (2016), 6.4 (2017)

Valuation & Recommendation

• Zijin Mining: Maintained HOLD with a target price of HK$2.20.
• BBTN IJ: Not rated. Trading at 1x 2016F P/B, which is slightly below historical average.

Analysts

• Johnson Hu: +8621 5404 7225 ext 809, johnsonhu@uobkayhian.com
• Cynthia Wang: +8621 5404 7225 ext 858, cynthiawang@uobkayhian.com
• Alexander Margaronis: +6221 2993 3876, alexdermargaronis@uobkayhian.com

Summary of Key Risks and Opportunities

• Zijin Mining is expected to face continued pressure from low metal prices, but its production expansion and hedge gains may partially offset this.
• BBTN IJ is expected to benefit significantly from the "One Million Houses" programme, with potential for strong earnings growth.
• Malaysia's FBMKLCI lacks near-term re-rating catalysts, but high dividend-yielding defensive stocks should appeal.
• Gold prices have rebounded due to financial market turmoil, but the outlook remains uncertain.
• Copper prices are expected to decline, which may impact earnings.
• Sensitivity analysis shows a 5% gold price decline could lead to a 15% earnings decline, while a 10% decline could result in a 31% drop. However, hedge practices may reduce the impact.